What does pass through status for REITs mean?

Pass-through means income generated would be taxed in hands of investor, and fund itself would not have to pay tax on same

The Real Estate Investment Trust, a pooled vehicle which can be used to invest in real estate, just got a boost in the Union Budget.

The Finance Minister Arun Jaitley, has said that the government would allow 'pass-through' status for REITs.

A 'pass-through' status means that the income generated would be taxed in the hands of the investor, and that the fund itself would not have to pay tax on the same.

Without this clarification, it was feared that REITs may be subject to double-taxation; paying tax whenever income was generated at the fund level, and then again in the hands of the investor.

The Securities and Exchange Board of India had come out with draft guidelines for the new investment vehicle in October 2013. The regulator deferred a final decision on account of ambiguity on the taxation of the new vehicle.

The stock market regulator had met with the Finance Ministry on the issue ahead of the budget.

"We have come out with a discussion paper on Real Estate Investment Trust and are hoping to get it implemented soon. Our rules are ready, we have taken up with the government that these must be given a pass-through certificate status so far as tax status is concerned," Sebi chairman U K Sinha said at a summit organised by Skoch Consultancy Services.